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Stop cheque, pay the price with jail term

New Delhi, Aug. 31: Even a “stop cheque payment” instruction to his bank can land a person in jail.

The Supreme Court, in a recent judgment, has ruled that such instructions amount to an offence under the Negotiable Instruments Act, 1885, enough to send the offender behind bars.

Normally, it is understood that if a cheque bounces because of insufficient funds, the payee can initiate criminal action against the drawer under the act, which may lead to imprisonment for up to a year.

But the court said even issuing “stop cheque payment” instructions would invite criminal liability if an aggrieved party files a complaint.

The court upheld an appeal by a Gujarat-based company that had challenged a high court order that said issuing such instructions was not a criminal offence.

A bench of Justices Ranjana Prakash Desai and N.V. Ramana said the high court “fell into a grave error when it proceeded to quash the complaint” of the company.

The bench, which cited an earlier judgment by the apex court, said even “stop payment” instructions can make a person “liable for offence punishable under Section 138 of the NI Act” if the cheque is “dishonoured on that count”.

Writing the judgment, Justice Desai said “once the cheque is issued by the drawer, a presumption under Section 139 must follow and, merely because the drawer issues a notice to the drawee or to the bank for stoppage of the payment, it will not preclude an action under Section 138 of the NI Act by the drawee or the holder of the cheques in due course”.

In this case, the accused company had got bulk orders to supply desktop computers, printers, UPS and other products. It outsourced spare and other requirements to another company (the complainant), making part payments regularly. For the remaining dues, it handed over a post-dated cheque for Rs 11,80,670 in favour of the complainant.

The complainant presented the cheque twice for collection through its banker but it was returned unpaid because payment had been “stopped by (the) drawer”.

The complainant then sent a demand notice to the accused, asking it to pay the cheque amount within 15 days from the date of receiving the notice. The accused failed to pay the amount.

In an order dated November 15, 2006, the chief judicial magistrate of Vadodara issued summons to all the accused. But the accused company moved Gujarat High Court, which quashed the complaint, saying “stop payment” instructions were not covered by Section 138 of the NI Act.

The high court held that the section applied to a cheque returned on account of insufficient funds or when the cheque amount exceeded the amount arranged to have been paid from that account by an agreement with the bank concerned.

The high court further said the cheque in question had been returned on account of “stop payment” instructions because the complainant had failed to discharge its obligations according to the agreement.

The complainant then moved the apex court.

The top court said the high court, instead of deciding on whether a “stop cheque payment” instruction was an offence or not, had gone into the merits of the original dispute — that is, whether the complainant had “discharged its obligations” or not.

That is a “matter of evidence”, the bench said, while setting aside the high court verdict.